A question of financial inclusion
Yesterday, in the House of Lords I tabled a question “to ask His Majesty’s Government what steps they are taking to increase financial inclusion in England?”.
I have been speaking out about the social and economic benefits of financial inclusion for years. In 2016 I was part of a special House of Lords Inquiry into the problem of financial exclusion, and although we reported in 2017, now five years later, many of the same problems remain and are compounded by the rise of Covid-related trends and bank branch closures.
Not only is it harder to get hold of cash, it’s also harder to spend it. An increase in online banking and digital payments are creating new hurdles for the digitally excluded.
Digital and financial exclusion all too often walking horribly hand in hand. I believe fintech has an important and valuable role to play in promoting financial inclusion, but it won’t happen without the right kind of human intervention. Many of the recommendations of our 2017 report still stand but ensuring cash acceptance and looking at access to digital payments are new and essential parts of the puzzle.
Data tells us there are around two million in the UK outside the banking system, with no access to credit, savings or any financial services.
The Financial Conduct Authority’s (FCA) most recent (2022) Financial Lives survey found 12.9 million UK adults had low financial resilience – 1 in 4 (24%) of all UK adults. This is 2.2 million higher than the last survey in 2020.These are people who are in financial difficulty, or who could quickly find themselves in difficulty if they suffer a financial shock, because, for example, they have little to no savings or are heavily burdened by their domestic bills or credit commitments.
This matters, not least because access is vital if people are to be enabled to participate fully in society. There is a real kicker here, because not only are those with the least already facing severe challenges, but as a result of their financial situation they are forced to pay more for services, even those as fundamental as heat and power – what is known as the ‘poverty premium.’
How did the Minister respond to my question?
The Parliamentary Secretary, HM Treasury, Baroness Penn said: “The Government want to ensure that people, regardless of their background or income, have access to useful and affordable financial products and services. To increase financial inclusion, the Government work closely with regulators, industry and consumer groups. Since 2019, we have allocated £100 million of funding from dormant assets towards this. The Government are also promoting financial inclusion through the Financial Services and Markets Bill, for example by introducing legislation to protect access to cash.”
In reply I highlighted the issues of cash acceptance and digital payments.
I said: “My Lords, when it comes to financial inclusion, cash still matters materially to millions. Would my noble friend agree that it is not just about access to cash? Acceptance of cash is equally important. Further, as we move increasingly towards digital, would she agree that it is time for the Government to undertake an access to digital payments review to ensure financial inclusion for all?”
The Minister’s response was mixed, saying: “My Lords, our approach is that accepting cash is a decision for the firms involved. We have taken action to ensure that people can access cash through ATMs and elsewhere. My noble friend also makes an important point about digital inclusion and digital payments. We are looking at how we can promote that alongside financial inclusion in our work through the Financial Inclusion Policy Forum and other avenues.”
Colleagues from across the House raised other important questions. Baroness Tyler, who chaired the 2016 inquiry, asked which Minister has formal lead responsibility for financial inclusion now? Under the previous arrangements, it was not one but two Ministers: one in Treasury and one in DWP. It is currently unclear who has this responsibility and the Minister promised to find out and get back to us. Baroness Bull asked what the Government are doing to tackle poverty premium issues in financial services.
She said: “We know that people on the lowest incomes pay more for credit and insurance, for instance, but issues such as this seem to be kicked between the Treasury, which says it needs more data in order to take action, and the regulator, which says that it is not within its remit to collect that data. How does the Minister expect that the new FCA consumer duty and consumer vulnerability guidance will help tackle the poverty premium, given that they deal primarily with existing customers and do not address the needs of those consumers whom the market finds more expensive and therefore less profitable to serve?”
The Minister replied that the Financial Inclusion Policy Forum has worked on this and gave an example of action taken by The FCA on motor and home insurance to stop customers who are renewing being charged more than new customers.
Finally, a good point was made by Lord Tunnicliffe about the need to protect consumers from financial scams and fraud and that the government response must include clear and consistent measures despite the large number of Bills currently before Parliament dealing with fraud.
The Government currently have the Economic Crime Bill, the Financial Services and Markets Bill and the Online Safety Bill before Parliament; we will shortly see a data Bill too. The Minister pointed out that it is not possible to address fraud and scams through financial services regulation alone. For example, many fraudsters access people through online platforms, so we need to look at that approach too. She also confirmed that the Government are committed to bringing forward a fraud strategy that will bring together work from regulators, government and law enforcement to get a grip on this issue.
All the issues raised are significant and will not be resolved without action. Ireland is looking at mandating cash acceptance in shops and restaurants. HSBC has just announced a further 114 bank branches closured due to the growth in online banking. Responsibility for financial inclusion must be firmly gripped at the top, we need leadership in Government and cross-Whitehall working.
I support a statutory duty on the regulator (the FCA) to promote financial inclusion as one of its core objectives and an amendment in the Financial Services and Markets Bill makes this, finally, look like a real possibility. This is about social inclusion, this is about connected communities, this is about enabling business to thrive. It makes social, it makes economic, it makes political sense, and it is achievable.